Facebook became one of the youngest public traded companies to join the S&P 500 on Wednesday, December 11, 2013. The Facebook example highlights the capricious way in which modern markets and their profit margins can hinge upon a few drib-drabs of breathless gossip shared on Twitter or FB that can galvanize entrepreneurs. Indeed, the soap-operatic drama that has become part and parcel of the near instantaneous self-immolation Facebook and its chief executives almost perpetuated upon themselves eighteen months ago, before making a dynamic comeback as their social network stock, which was shunned by investors after being listed, is now as good as gold.
Facebook shares rose by as much as 4 percent to US$51.35 in after-hours trading on Wednesday after S&P Dow Jones indices announced the company would be admitted to the S&P 100 and the S&P 500 after the close of trading on December 20. Those with a short-memory, of course, remember share issues opening at US$38 each in a completely bollixed-up offering in May, 2012. If your memory does not serve, Facebook’s stock halved in the first five months after it first listed, falling below US$18 in November 2012 because jittery investors were anxious as to whether advertising business would follow its users on to their mobile devices.
The move highlights just how lightning-quickly the latest generation of super high profile, consumer-oriented, social media companies have rendered themselves a fixture of the US market. Facebook’s fantastic earnings couldn’t be better timed. There could be no possible better time for Twitter, whose executives are currently on their investor roadshow. Indeed, TWTR could start trading as soon as next week, according to The Economist and Facebook’s handy beat-to-earnings forecasts, along with the truly surprising reaction of oft-jaded investors’ and their sudden enthusiasm reaction for them, creating a perfect drum-roll for Twitter’s IPO.
Then again, the eternally cautious may consider risks swinging too far the other way. When putting out P.R. spin, Twitter has worked diligently to mute inflated expectations. You know, the kind that caused Facebook’s stock to slump for so long. Depending, of course, on your definition of the word ‘long.’ Either way, there’s no denying that it took just a year-and-a-half to join the indices after listing, far faster, for example, than the time it took Google to achieve a similar status on the Nasdaq following its IPO in 2004.
Social networking company shares have already risen more than 85 per cent this year, as investors are no longer dubious as to whether mobile phone advertising is here to stay. An initially wobbly market was reassured by second- and third-quarter earning numbers which easily surpassed expectations.
Additionally, Facebook benefited from the public’s renewed optimism in social media, as its rival Twitter’s shares doubled their price in less than a month, making valuations for companies trading on the private market explode. Other Social startups like Pinterest, the online scrapbooking site, Facebook’s Instagram, and my fave, Snapchat, the ‘ephemeral’ messaging site, have, according to the New York Times and the latest round of funding, seen their valuations increase by upwards of two billion dollars in just a few months this year. Having joined the S&P indices, Facebook shares also automatically added to funds which allocate capital to the S&P benchmarks, that are clearly among the most widely tracked on global equity markets.
